2015 Applicant Training - Arkansas • Applicants can receive funding for Category One special construction costs incurred up to six months prior to start of funding year. – Occurs

© 2015 Universal Service Administrative Company. All rights reserved.

2015 Applicant Training

Fiber Options

© 2015 Universal Service Administrative Company. All rights reserved. ‹#›

• Review of fiber options available as a result of theSecond E‐Rate Modernization Order

– Expanding Access to Broadband for FY 2016 and beyond

Today we’ll talk about:

Agenda


• Emphasis on providing additional flexibility for schools and libraries seeking high‐speed broadband connections.

• Lack of access to broadband, especially in rural areas, and high cost of those services are major obstacles in meeting program goals.

• Order designed to help close the rural connectivity gap and increase affordability of high‐speed broadband connections.

• Everything discussed today will be in effect from FY 2016 forward.

Overview

Expanding Access to Broadband


• New Options for E‐rate funded special construction for new fiber.

– Cost of deploying new fiber (as opposed to ongoing cost of leasing or maintaining/operating fiber.)

– Provides up‐front capital that will reduce monthly recurring cost to applicants.

– Previously available for lit services.– Now also available for dark fiber and self‐provisioned

fiber.

What’s New?



• Regardless of the services sought (including new fiber options), E‐rate rules continue to require that applicants:

– Conduct fair and open competitive bidding process.

– Selecting the most cost‐effective bid.

What Stays the Same?



Old Requirement

• Applicants had to amortize large, up‐front construction costs in excess of $500,000 over three years.

Amortization of Up Front Special Construction Costs


New Requirement

• E‐rate will now pay the full discounted share of up‐front special construction charges in the first year.


Previous Requirement:

• Applicants had to pay their share of non‐recurring cost of special construction within 90 days of the start of service.

Installment Payments for Special Construction Costs


E‐rate will now allow:

• Applicants are allowed to pay their share of those up‐front costs in installment payments over up to four years.


• Applicants interested in an installment payment plan option must indicate their interest on FCC form 470

• Service providers are under no obligation to offer such installment payment options to applicants.

Installment Payment Plan of Up Front Special Construction Costs



• Applicants can receive funding for Category One special construction costs incurred up to six months prior to start of funding year.

– Occurs after selection of service provider via FCC Form 470

– Actual service start date is on or after July 1 the funding year.

– Can get one year extension due to unavoidable delays.

Special Construction Projects



• Beginning FY 2016, funding for lit and dark fiber has been equalized.

• Dark fiber leases allow the purchase of capacity separate from the service of lighting the fiber.

Equalizing Dark and Lit Fiber



Old Dark Fiber Rule

• E‐rate would only pay special construction costs up to the applicant’s property line.

• Modulating electronics not eligible in Category One.

Equalizing Dark and Lit Fiber


New Dark Fiber Rule

• E‐rate will now pay special construction costs beyond the applicant’s property line.

• Modulating electronics to light dark fiber will be eligible for category one support.


• Applicants that seek bids for dark fiber must also seek bids for lit fiber service.

• Before selecting a dark fiber solution, applicants must fairly compare dark fiber with other available options to ensure the most cost effective option is chosen.

Requirement to Compare Dark and Lit Fiber



• To the extent an applicant intends to seek support for equipment and maintenance costs associated with lighting newly leased or purchased dark fiber, the request for support for those services must be included in the same application with the dark fiber lease.

• Applicants will not receive support for excess capacity and may only receive special construction support for dark fiber lit in the same funding year.

Requirement to Compare Dark and Lit Fiber (continued)



• Applicants may seek E‐rate support for self‐construction of their own high‐speed broadband networks, or portions of such networks, when self‐construction is the most cost‐effective solution.

– Applications for self‐provisioned networks should reflect the total cost of ownership, including special construction, equipment, and maintenance and operation.

Self‐Construction of High‐Speed Broadband Networks



• Requirements:

– Applicants soliciting bids for a self‐provisioned network must also seek bids for lit service on the same FCC Form 470, unless the applicant already posted for broadband services for this same funding year and received no bids.

– Applicants must compare the cost of lit fiber service to the total cost of ownership over the life of the facility for self‐provision option.

– Applicants seeking dark fiber or self‐provisioning must upload an RFP in new the FCC Form 470 system.

Self‐Provisioned Fiber Networks



• Be as specific as possible to enable a meaningful comparison of lit, dark, and self‐provisioned options.

• Include estimated bandwidth sought. Terms such as “as needed” or “district‐wide” are not sufficient descriptions of the quantity or capacity of the products and services requested. Applicants may identify a range, such as 100‐200 Mbps.

• Include expected growth rate in bandwidth demand over the relevant time period and seek pricing for the increased level of bandwidth over time.

Guidance on RFPs



• Include any state or local procurement requirements.

• RFPs must be available for at least 28 days.

• Fiber RFPs take time to write.

• Potential bidders need more time to respond to these bids.

• Start early!

Guidance on RFPs



Old Rule• Applicants must conduct fair and

open competitive bidding process.

• Applicants had to select the most cost‐effective service provider.

• Price of eligible products and services must be the most heavily weighted bid eval factor

Competitive Bidding Considerations


New Rule• Applicants must conduct fair and

open competitive bidding process.

• Applicants had to select the most cost‐effective service provider.

• Price of eligible products and services must be the most heavily weighted bid eval factor


• Comparing different fiber options:

– Determine a reasonable, defensible period of time for the comparison, based on their anticipated use of the assets. Applicants that choose to self‐provision or purchase the equipment required to operate a dark fiber IRU may expect to recover their costs in 5, 7, 10, or even 20 years.

– Identify a comprehensive and specific total cost for each option.




• Comparing different fiber options:

– Applicants must be prepared to explain their assumptions, such as expected useful life.

– Divide total cost of IRU or self‐provisioned fiber by number of years to determine annual cost.

– Compare to annual lit fiber charge.

• Applicants cannot resell service.

• Applicants must secure access to necessary resources.




• USAC will focus on verifying the cost effectiveness analysis explained above in the bid evaluation phase.

• When applicants add up the total anticipated costs over a reasonable, defensible time period, the most cost effective option will be clear in most cases.

Cost Effectiveness



• For shared or multi‐purpose fiber build projects, costs necessary to get the fiber to the school or library are eligible.

– E‐rate will not fund capacity beyond what the applicant needs in that funding year. Applicants may not seek E‐rate funding for fiber that the applicant is not using.

– Example: Applicant needs 12 strands of fiber. Construction is for 96 strands. If no plans for other customers, only remove cost for 84 additional strands, but all other special construction costs would be fully eligible.

Cost Allocation



• Providing an incentive for state support of last‐mile broadband facilities.

– E‐rate match of up to 10% of the cost of construction will be provided to match state funding for special construction charges for high‐speed broadband connections.

– E‐rate match also provided for Tribal schools and libraries when matched by state, Tribal government, or federal agency.

Additional Matching Funds for Fiber Builds



Fiber Options

Deep Dive: Fiber Construction


Why Fiber?Unlimited Capacity

Single Fiber Pair


Special Construction on lit fiber service

– Service provider owned

– Upfront capital to reduce monthly recurring costs

General Industry Definitions:

Fiber Basics

Special construction for dark fiber

– Newly eligible (beyond property line)

– Applicant must light and maintain fiber or hire a third party to do so

The definitions in the following slides are general industry definitions, not formal FCC or USAC definitions.


• Indefeasible Right of Use (IRU)‐ In telecommunications, Indefeasible Right of Use (IRU) is the effective long‐term lease (usually a capital lease) of a portion of the capacity of an existing or to‐be‐constructed cable. IRUs are specified in terms of a certain number of strands of fiber. IRU is granted by the company or consortium of companies that built the (usually optical fiber) cable. Some IRU legal agreements forbid resale of the strands. A typical IRU ownership period is granted for 20 years.

These are general industry definitions not formal FCC or USAC definitions

General Industry Definitions

Fiber Basics


• Aerial Fiber –Fiber construction where the fiber is placed on existing or newly built poles. Fiber typically shares space with electrical transmission lines on these poles.

• Attachment Fee‐ An annual fee charged by a utility pole owner as “rental” for the placement of fiber on their utility pole.

• Buried Fiber‐ Fiber construction where the fiber, typically placed in a plastic conduit, is buried underground. Industry standard is to bury fiber and conduit at a depth of 3’ or more.

These are general industry definitions not formal FCC or USAC definitions

General Industry Definitions

Fiber Basics


• Projected bandwidth demand outstrips the capacity of the existing infrastructure.

• Local market will yield lit service bids that cost effectively scale to meet the need.

• Capital costs to upgrade infrastructure are significant and special construction capital will reduce monthly recurring costs.

When to consider special construction for lit fiber service?

Special Construction


• Projected bandwidth demand outstrips the capacity of the existing infrastructure.

• Total cost of ownership analysis of lit service vs. dark fiber, including costs reflecting the complexity of ownership, are very favorable.

– Assumptions on bandwidth growth and costs are reasonable and defensible.

• There are no other options, or no other cost‐effective options available.

When will an applicant likely consider seeking bid on special construction of dark fiber?

Dark Fiber


Self Construction Example

Aggregation Network

Internet Drain

Entity 1

Entity 2

Entity 3

Local Loop

District WANAdvanced Networks

District/SystemHub orCO/PoP

Regional Hub orCO/PoP

(Billed based on use)Orange lines indicate potential for special construction


Dark Fiber: Example

Internet Drain

Library or School

CO or POPLocal Loop

Orange lines indicate potential for special construction


Dark fiber IRU vs Self Construction

Dark Fiber vs. Self Construction

Indefeasible Right of Use (IRU) Self Construction

Only an IRU of newly constructed fiber is special construction. An IRU of existing fiber is a Category 1 service

Applicant can ask for design build or act as own General Contractor (Applicant cannot seek E-rate support for applicant’s cost in acting as the General Contractor)

Capital lease with a term of 5-20 years (typically) Lessee still responsible for lighting

If General Contractor – every element must be bid separately • Engineering/Environmental• Outside plant• Construction• Electronics• Legal and administrative

Annual maintenance and operations • Markers• General inspection

Responsible for operations and maintenance of entire build

Cuts and relocates – pro rata share Contemplating partnership builds and parameters of this


• Added support planned for applicants – Self identify early

• RFP process – start early!• Key information

– End points of service

– Proposed route

– Known right of way, pole attachment (aerial), railroad crossing or environmental issues

Guidance to Applicants

Self Construction


• Length of IRU should be seen as commitment to use• Consider whether annual maintenance fee should be part of bid• Cuts and relocates clauses • Follow your state and local procurement regulations• Ability to pay clause included • Timelines for test and completion• Specification for repair of cuts or outages • Outside plant specs • Electronics specs

Items to Consider: IRU RFPs

Dark Fiber or Self Construction


• Be as specific as possible.• Long term commitment to use the fiber • Be aware of state and local procurement regulations including ability to pay• Timelines for completion of every phase of work – engineering, OSP

manufacturing, construction, permitting, electronics delivery, maintenance • Outside plant, electronics, and maintenance specifications• Aerial or buried construction specs • Annual fee for pole attachments for aerial • Specification for repair of cuts or outages

Items to Consider: Construction RFPs

Self Construction


• Who will light and operate the fiber?

• Define the managed service provided?

– What role in notification/troubleshoot/NOC

– What role in fiber repair

– What role in electronics repair

– Bandwidth limitations, if any

Items to Consider: Annual Maintenance

Self Construction


Thank you!

Documents

2015 Applicant Training - Arkansas • Applicants can receive funding for Category One special construction costs incurred up to six months prior to start of funding year. – Occurs